FTC Values Sponsored Conversations at $11,000 Apiece.

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Today, the Federal Trade Commission made good on its threat promise to change the way it regulates endorsements from bloggers by releasing its final revisions to the guidance it gives advertisers on how to keep their endorsement and testimonial ads in line with the FTC Act. Last May, we reviewed the proposed FTC guidelines that will now change the disclosure rules around paid endorsements and testimonials, and thus how brands use online endorsements in their marketing, advertising, and communications programs.

This amendment marks the first time in 29 years since The Guides were last updated in 1980.

In the 1980 version of the Guides, advertisers were allowed to get away with promoting unusually positive or outlier experiences in a testimonial as long as they included a disclaimer such as “results not typical.” Long overdue, the revised Guides no longer allow this form of safe harbor.

But for anybody contributing to the new media landscape, these new rules contain a dire warning that everyone from bloggers to “social media experts” (everyone raise your hands) must heed.

While The Guides mostly define the rules of engagement for advertising, it now contains clear language and consequences associated with the use of paid testimonials in blogs and celebrity endorsements.

As a result of the evolving level of influence inherent in the social Web, and web in general, the notice incorporates several amendments to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in advertising and blogging, which address endorsements by consumers, experts, organizations, and celebrities, as well as the disclosure of important connections between advertisers and endorsers. Fines for violating the new rule will run up to $11,000 per incident.

Even though the FTC Guides refer to blogging, advertising, and celebrity endorsement specifically, Twitter and other social networks will not be overlooked. Pay-per-Tweet services such as Ad.ly,Izea, and Twittad are providing networks for brands to engage with the audiences of real celebrities as well as the communities of people who follow the Internet famous. Disclosure is also required in these new mediums. It should also be noted that these companies are working with the FTC and Twitter to help create a fair set of standards around disclosure, as well as the technology framework to effectively disclose sponsored Tweets.

However, in the eyes of the FTC, a paid endorsement is no longer limited to monetary compensation and this is why things will get interesting moving forward.

The revised Guides feature new examples that illustrate the long-standing principle that “material connections” between advertisers and endorsers—connections that consumers would not expect—must be disclosed. This is true whether it’s a payment or free products that change hands.

The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. To be clear, a blog post (or Tweet) in exchange for cash or in-kind payment to review a product is considered an endorsement.

The examples address what constitutes an endorsement when the message is conveyed by “bloggers or other word-of-mouth marketers.“

While I agree with the need for disclosure in sponsored posts and tweets, the FTC’s inability to see blogging as a bona fide publishing channel comprised of expert writers and pundits in addition to those consumers willing to exchange content for compensation, is incredibly hazardous.

For instance, traditional reporters and journalists have long received products and services to review. In the ethical world, brands entrusted the resulting experience with the reviewer and used corporate collateral and not monetary pressure to help sway positive exposure. In some cases those reviewers either kept products or received services, without paying for them, whether or not they ever published an unbiased review. Why are professional bloggers viewed differently?

Since the FTC is reviewing incidents on a case-by-case basis, perhaps they will eventually realize the clear division between editorial and advertorial regardless of platform. The difference between endorsement and individual experience should be discernible in the intent of the arrangement between brand and writer.

In the meantime, brands and bloggers can only benefit from disclosing the nature of endorsements. In the realm of new media, transparency and ethics speak louder than the value proposition of the product itself.

The FTC could not be reached for comment at this time in reference to the delineation between consumer bloggers and subject matter authorities who blog. We will update this post once we receive a response.

Update: The FTC responds

When asked if the FTC views bloggers equally and whether or not it recognizes levels of authority on par with traditional media, Mary Engle, associate director for advertising practices, clarified its position and perspective, “All bloggers aren’t the same and we are not saying that all bloggers are marketers. Most of them are ordinary folks musing or sounding off. The question as we put it in the notice we published today is whether, viewed objectively, the blogger is being sponsored by the advertiser. (We list a number of factors to consider.) Independent product reviewers, whether offline or online, would not be viewed as sponsored by the company whose products they are reviewing.”

Engle further observed the distinction between expert and consumer bloggers, “But if bloggers regularly receive free products from a company, the blog audience might view their reviews differently than if they went out and bought the products on their own. Under those circumstances, bloggers should disclose they got the products from the company. This is consistent with the WOMMA code of ethics. And, companies who use bloggers to generate buzz about their products by sending free merchandise should have a policy that their bloggers should disclose.”